Apple’s Only 10% Of The Phone Market But They Make 60% Of The Profits

THE smartphone is really only just under 7 years old: that’s right, we’re just coming up to hte 7 th anniversary of the release of the Apple iPhone. And this smartphone is now the fastest adopted technology of all time: there were a billion of the damn things made and sold last year. But the truly remarkable thing is that while Apple only has around 10% of this market they have been able to capture 60% of all of the profits of the entire sector.

Indeed, since the launch of the iPhone[3] the net profits earned by the collection of protagonists shown was $215 billion[4]. 60% has been earned by Apple, a newcomer to the market. That figure is also consistent on an ongoing basis, having reached 60% as early as 2011 and remained in a band around that figure since.

Actually, that’s friggin’ amazing. But the story doesn’t stop there. Over and above the profit that they’ve managed to capture there’s the amount that we, the consumers, have been able to enjoy as we play with our new shiny shiny. We must indeed gain more value from our iPhones than we pay for them precisely because if we didn’t we wouldn’t bother to buy them. This value over and above what we actually pay is called the consumer surplus. And sadly we’ve no real way of working out exactly what it is. It doesn’t form part of any of the conventional numbers like GDP or anything. The best guess we can make is to look at it in another way.

We do have an estimate of how much of the value from innovation that the entrepreneurs manage to keep. This isn’t entirely accurate, to call Apple the entrepreneurs but it’s a close enough sorta thing. And the finding is that the innovators manage to hold on to around 3% of the total value of their innovation. There’s a bit that goes to the financiers but the vast majority comes to us the consumers in that consumer surplus. So, if Apple has managed to get $129 billion out of the iPhone then we must have made 97/3×129, or $4.2 trillion dollars out of its existence.

Yes, yes, I know, a pretty dodgy calculation: but it is of the right sort of order that consumer surplus. And that really is friggin’ amazing.